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On March 30, 2016, U.S. District Judge Rosemary Collyer tossed the Financial Stability Oversight Council’s (“FSOC”) designation of MetLife as a non-bank Systemically Important Financial Institution (“SIFI”). The implications of the ruling remain unclear as Judge Collyer ordered the opinion sealed. However, her order on Wednesday disclosed she had upheld arguments that regulators failed to adequately assess the insurance company’s vulnerability to extreme financial distress and the potential economic impact of the designation.

She also appeared to back, at least in part, MetLife’s charge that regulators relied on unsubstantiated assumptions or speculation during the designation process that were not supported by the reform law or regulators’ own interpretive guidance. Judge Collyer may have also agreed with the allegations that the agency’s actions in the administrative procedures resulting in MetLife’s SIFI designation were so egregious as to be “arbitrary and capricious.”

MetLife had made a number of arguments in its filings including, among others, that: (1) FSOC had a misunderstanding of state insurance regulations (a charge supported by the fact that in the vote to determine MetLife’s SIFI status, both the non-voting insurance commissioner representative and FSOC’s only voting member with expertise regarding the insurance industry dissented from the determination); (2) MetLife is not a “U.S. non-bank financial company” over which FSOC has potential jurisdiction because more than 15% of MetLife’s revenues and assets relate to insurance activities in foreign markets; (3) FSOC failed to conduct any threshold inquiry as to whether MetLife was vulnerable at all to material financial distress, instead employing “impossibly vague” concepts of “material financial distress,” “overall stress in the financial industry,” “weakness,” and “macroeconomic environment”; (4) FSOC failed to consider significant evidence submitted by MetLife that, in the event of distress, it could liquidate assets without posing a threat to the U.S. economy; (5) FSOC failed to consider the costs of designation as a SIFI; and (6) the process used by FSOC is so opaque as to deny due process.

FSOC was created by Congress in the wake of the 2008 financial crisis. FSOC is charged with identifying risks to national financial stability and, as part of that mission, has the authority to designate companies as SIFIs. Designation as a SIFI results in the imposition of more regulations, more stringent capital standards, and oversight by the Federal Reserve.

On December 18, 2014, MetLife was notified by FSOC that it had been designated a non-bank SIFI. In addition to MetLife, FSOC has designated three other companies as non-bank SIFIs.

A public version of the opinion may be made available after April 6. If the opinion is broad in its construction, it may hold substantial importance for the status of other financial institutions—both those that were previously designated and those that may be designated in the future. It is possible that, in the future, financial regulators, including Treasury Secretary Jack Lew, SEC Chair Mary Jo White, Federal Reserve Chair Janet Yellen, and Consumer Financial Protection Bureau Chair Richard Cordray, may become more actively involved in the process of designation, to avoid the procedural issues that may be highlighted in the order.

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